Determinants of operational self-sustainability of microfinance institutions in Vietnam

ing liquidity management, credit management, credit risk management, operational risk management, financial management, capital adequacy ratio management... in order to decrease portfolio risks, ensuring that MFIs can operate safely and sustainably. This is also the solid foundation for MFIs to reduce the costs, increase revenues, build strong reputation for attracting savers, investors and donors. - Expanding the customer base extensively and intensively by diversifying financial products provision, such as lending (flexible durations and payment periods according to clients’ cash flow, risk-based interest rate decisions for clients), microinsurance, remittance, savings (various term savings, savings for different purposes such as education, emergency, healthcare, installment savings). The application of soft selling and upselling techniques should be applied, in parallel to non-financial products such as financial literacy, financial advices, etc are helpful for keeping microfinance existing clients and attract the new ones. This approach is also essential for ensuring no “mission drift” of MFIs in its commercialization and development. 677 - Develop the clear strategy for the scope of operations in accordance with the size and capability of MFIs development. If MFIs restrict scope of operations within few products or few operational areas, they will limit the ability to reach customers and increase market share; thus, affecting the sustainability of the organization. However, if MFIs extend their operation too fast, it will reduce the sustainability due to the increase of management and operation cost, while facing difficulties in competions of expanding market shares with other stronger financial providers such as commercial banks, people’s credit funds, other MFIs, and private money lenders. - MFIs operating in the form of Programs/Project of MFIs should be converted into social funds, as this is currently the highest sustainable model. Social funds need to choose appropriate time to officially transfer to MFI after the legislation on microfinance activities be modified and improved. At the same time, social funds should also develop a plan and prepare carefully in all aspects such as personnel, finance before officially transforming to MFI. This will help MFIs to become actively and overcome the difficulties and challenges when initially formalized to stand strong and grow. To policy makers (State Bank of Vietnam, Ministry of Finance and related government agencies) The development of MFIs depends very much on the legal framework, particularly the regulations directly related to MFIs. The transformation of MFIs into formal microfinance institutions is a right policy to guide these organizations operate in a professional manner. Based on the experience from other countries, after the conversion, most MFIs will have larger operational scale and be more efficient. However, in this research, licensed MFIs have lower level of operational self - sustainability than social funds (semi-official MFIs). It means that the current regulations are still costly to licensed MFIs, as they have to adapt various prudential requirements for safety, and system transformation cost of changes. 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(2001), ‘Poverty Lending Financial Self-sufficiency and the Six Aspects of Outreach’, SEEP Working Group Paper, New York, NY. 681 APPENDICES Appendix 1: List of Vietnam’s Microfinance Institutions in the research MFI name Symbol name 1 Fund for poor self-employed workers CEP 2 Tinh thuong One Member Limited Liability Company TYM 3 M7 Microfinance Institution M7MFI 4 Thanh Hoa Microfinance Institution Thanh Hoa MFI 5 Women Development Fund of Dien Bien district FWD 6 Women Development Fund of Dien Bien Phu city DBP CITY 7 Microfinance Department - World Vision Vietnam WV Vietnam 8 Tien Giang Provincial Women's Economic Development Assistance Fund MOM 9 Fund for poor employees in Ba Ria - Vung Tau province CAFPE BR-VT 10 Golden Hand Program BTV 11 Ho Chi Minh Women Supporting Economic Development Fund CWED 12 Anh Chi Em Program ACE 13 Center for Development for the Poor Ha Tinh PPC 14 Small Business Development Center SEDA 15 Ninh Phuoc Women Development Support Fund 16 Hue Heart Foundation H4H 17 Microfinance fund for community development MFCDI 18 Credit savings program - Women's Union, Phu Yen District, Son La 19 Center for Women and Community Development CWCD 20 Standard training STU 21 An Phu Development Fund AN PHU 22 Fund for supporting women in Bac Kan province BKF 23 Fund for supporting women in Lao Cai province 24 Fund for supporting women in economic development of Ben Tre province BTWU 25 Fund for opportunity for women to work in Daknong province DNOWEOF 26 Soc Son Fund for the poor women PNN 27 CSOD 28 Childfund Hoa Binh 29 Dariu 30 Small Credit Fund For Housing Refurbishment, Da Nang 31 Soc Trang Fund for Poor Women 32 VietED Microfinace Institution VietED MF 33 Women Development Fund, Quang Binh 34 Ho Chi Minh City Women Union HCMC WOMEN UNION 682 Appendix 2: Results of statistical tests of the Model VIF test result Hettest result Mean VIF 2.07 lnalspb 1.18 0.850496 lnear1 1.23 0.814826 lnpar1 1.26 0.796620 loc2 1.44 0.693361 lnage 1.60 0.625941 loc1 2.30 0.435014 lnglp 2.75 0.364116 legaf2 3.30 0.303123 legaf1 3.55 0.281796 Variable VIF 1/VIF . vif Prob > chi2 = 0.0000 chi2(1) = 248.50 Variables: fitted values of lnoss Ho: Constant variance Breusch-Pagan / Cook-Weisberg test for heteroskedasticity . hettest